Mortgage 101 - Loan Terms and Closing Costs Disclosure Guidelines

Mortgage Loan Disclosures
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Your mortgage disclosures are important. Not only will you need to sign the initial disclosure package, but you will also likely have to sign several sets of re-disclosures throughout your mortgage process as your numbers come together and are finalized.

Documentation, home inspections, mortgage rate changes, rate locks, appraisal values and a myriad of other outside factors can change the numbers on your loan.

There are hard and fast guidelines on when and how you are to receive your numbers. There are also firm guidelines on how much those numbers can vary from the beginning of the process until you sit down at the closing table.

Knowing what to expect and when to expect it will significantly improve your mortgage experience.

With “Know Before Your Owe” rules set to be implemented in October, what you have experienced in the past may not be part of the new normal.

What Issues Do the New Guidelines Resolve

The new forms resolve the problem of redundant and overlapping information presented in the standard Real Estate Settlement Procedures Act (RESPA) and Truth In Lending Act (TILA) disclosures that lenders are required to send to borrowers following submission of a mortgage application and just prior to the closing.

The CFPB claims this merging and streamlining of the disclosures will help consumers better understand their options, choose the mortgage deal that’s best for them and avoid costly surprises at the closing table.

     

The new forms resolve the problem of redundant and overlapping information presented in the standard Real Estate Settlement Procedures Act (RESPA) and Truth In Lending Act (TILA) disclosures that lenders are required to send to borrowers following submission of a mortgage application and just prior to the closing.

The CFPB claims this streamlined disclosure set will help consumers better understand their options, choose the best possible mortgage deal for them and avoid potentially costly surprises at the closing table.

What Changes Will the “Know Before You Owe” Disclosure Guidelines Make

The new rules fulfill a Dodd-Frank Act requirement to address this duplication by combining the two sets of disclosures that consumers receive under the Truth in Lending Act (TILA) and under the Real Estate Settlement Practices Act (RESPA) in connection with applying for and closing on a mortgage loan.

The resulting disclosure forms under the new rules replace current forms:

The Loan Estimate replaces the existing Good Faith Estimate (GFE) and the early Truth-in-Lending (TIL) disclosures that currently must be provided to the consumer within three business days of the receipt of a loan application.

The Closing Disclosure replaces the Housing and Urban Development (HUD-1) settlement statement and the final TIL statement that must be provided to the consumer at least three business days prior to loan closing.

What Are the New Mortgage Disclosure Timelines

Consistent with the current rule, the new rule requires the Loan Estimate form be provided to the consumer by the third business day of receipt of the completed loan application.

The requirement that early disclosure be provided at least seven business days before closing remains unchanged as does the provision that allows consumers to waive the seven-day waiting period only for a bona fide personal financial emergency (written waiver, dated, and not on a form)

While the timing requirements nominally remain the same under the new rule, the new rule changes what constitutes a completed “application” that triggers the three-day requirement, which effectively changes the timing requirement.

Right now, what would constitute a completed application could vary from lender to lender, depending on what, if any, additional information they deem necessary.

The new rule’s definition of “application” removed that “catch all” provision, but is otherwise essentially identical to the current definition.

As a result an “application” that triggers the timing requirement for the Loan Estimate will, for any lender, consist of:

  • The consumer’s name

  • Income

  • Social security number to obtain a credit report

  • The property address

  • An estimate of the value of the property

  • The mortgage loan amount sought

We will have more on the details of the new “Know Before You Owe” disclosure requirements as the rules are implemented and possibly adjusted. Stay tuned.